Dwindling raw material stocks worry businesses

Businesses are in real danger as their stocks of raw materials have almost been exhausted due to the supply chain disruption caused by the coronavirus, otherwise known as Covid-19, outbreak in China and over 100 other countries.

They said if the situation doesn't improve in two weeks, production in many factories would be cut or halted, which may affect exports and overall economic growth.

"Some of our orders have already been cancelled because of delay in delivery," said Syed M Tanvir, a director of Pacific Jeans Ltd, which is a leading exporter of denim products.

He said they used to import some fabrics and accessories from China. Import of the raw materials got delayed due to an extended New Year vacation to face the outbreak of coronavirus or Covid-19.

MA Jabbar, managing director of DBL Brothers, also said their raw materials are almost exhausted and now they are sourcing some of those from other markets, but at higher cost.

"We have already been delayed by two months and the impacts on exports will be seen in the coming months," said Jabbar.

DBL's expansion plan has also been affected as the company has bought machines for its pharmaceuticals and ceramics units, but installation is getting delayed for want of erectors, which were to come from China.

There are around 4,000 apparel factories in Bangladesh and these factories import over 50 percent of its textile and textile-related raw materials, including accessories from China. Also, about 40 percent of capital machinery and spare parts for the industry are imported from China.

Meanwhile, Chattogram Port Authority (CPA) officials said that five vessels have arrived at the port carrying raw materials for garments and palm oil during the first 10 days of the month. Another ship is also waiting for berthing.

"Some factories, especially sweater, have already been affected as they have to import 65 to 70 percent of their materials from China," said Anwar-ul-Alam Chowdhury (Parvez), former president of Bangladesh Garment Manufacturers and Exporters Association.

It is not only the apparel sector that is feeling the pinch of the coronavirus outbreak, other industries are also being impacted badly.

For example, Meghna Group of Industries (MGI), a commodity giant, is facing shortage of raw materials for other industries, such as printing and packaging, chemicals, pulp and paper etc.

"Generally, we maintain a stock of raw materials for 40 to 45 days. This time is almost at an end since China went for lockdown and stopped exports," said Mostofa Kamal, chairman and managing director of MGI.
  
According to him, it is very difficult to find an alternative to China for sourcing of raw materials and capital machineries.

He said MGI's business expansion has also been slowed as 50 foreigners out of 120 working for different factories cannot rejoin.

Tareq Rafi Bhuiyan (Jun), secretary general of Japan-Bangladesh Chamber of Commerce and Industry, said it is something to be worried about.

"Many of my Japanese clients have cancelled their planned visit to Bangladesh in the last one and a half month and it has caused me financial losses," said Jun who runs New Vision Solutions, a research and consulting company.

Businesses are, however, optimistic that the situation in China will improve in a few weeks as some suppliers there are accepting letters of credit for imports from Bangladesh.

"In recent days, China has resumed accepting some LCs, but shipment is taking longer," said Jabbar of DBL. Tanvir of Pacific Jeans also echoed the same.

CPA officials said two more vessels carrying garments accessories, fruits and chemicals and oil are scheduled to arrive at the port from China on March 14 and March 20 respectively. 

The Business Standard has also talked to Khondaker Golam Moazzem, research director of Centre for Policy Dialogue, to understand the impacts and the way out of this critical situation.

"If production gets slowed down, small factories will be hit hard and some of those might be closed down for want of working capital," he said.

Moazzem urged the government to take a contingency plan elaborating how it can help affected industries with low-cost funds and other policy supports.

The government should also negotiate with the World Bank that has taken a $12 billion programme to help its member countries overcome the economic damage caused by the global Covid-19 outbreak.

China has already announced financial support to companies, such as increasing credit availability to meet exporters' financing needs, expanding the coverage of short-term export-credit insurance, and a decrease in insurance rates.

India is also preparing a contingency plan to deal with the situation and its impact on the economy.